Member Info for Fernan10

1. Hedging losses greater than expected. Consecuently, anticipated US$ 50-80 millon debt reduction in 1H 2018 not taking place.

2. Absolute lack of information about production rates of recently drilled/workover wells. It makes trying to forecast near term production an impossible task

3. Lack of justification to do a right issue to buy Magnus, after agreeing a ring-fence financing using Kraken cash flows.

4. the lack of justification for the 45% price discount in the rights issue. Why not issue a greater number of shares, at a reduced discount? This is harmfull for shareholders that are not able no participate in the issue.

Just my oppinion

Fernan

Im surprised to see that management is not providing any info about production rates of recently drilled or workover wells on Heather, Alma-Galia, Malaysia, etc. Just saying that the well are perfoming "according to expectations" is not enough in my oppinion. What expectations are they talking about? I have never read about a production forecast for those wells, so its impossible to say if they are talking about 1.000 or 5.000 bopd for each of them.

I read that some posters on this board are hopefull of better returns in the future because "production is growing". how do they know that?

The information (or the lack of) provided my management makes it impossible to forecast near term production for indiviual fields, much less for the company.

Just my oppinion

Fernan

Good morning guys.

My questions are:

In the first place, what is the reason to do the rights issue? couldnt they finance the acquisition of the remaining 75% of Magnus by using the funds provided by the recent financing agreement with OZ? If they couldnt, then why is the reason to get that additional financing from OZ?

Second, why did they decide to issue a larger number of shares, at a 45% discounted price? for shareholders that, for whatever reason, are not able to participate in the issue, this is clearly a negative and prejudicial move.

Thanks in advance for your comments

Regards

Fernan

E 121:

From what I read, the terms of the credit facility didnt state an schedule of debt amortization payments. What is mandated is that the total amount of the credit facility outstanding at certain dates should not be greater than the specified amount for each particular date. As long as Enquest accomplish that, I dont think the company is obligated to pay exactly US$ 270 millon by October 1, 2018

This is what I read, if they agree something different I havent hear of that.

Regards

Fenan

As a clarification, here is the schedule of the amortization of the debt facility, according to terms of the restructuring:

* extension of final maturity date to 1 October 2021;

* the following updated amortisation schedule for the Term Facility:

1. From the Effective Date up to and including 31 March 2018: US$1,200 million
2. From 1 April 2018 up to and including 30 September 2018: US$1,060 million
3. From 1 October 2018 up to and including 31 March 2019: US$930 million
4. From 1 April 2019 up to and including 30 September 2019: US$755 million
5. From 1 October 2019 up to and including 31 March 2020: US$655 million
6. From 1 April 2020 up to and including 30 September 2020: US$535 million
7. From 1 October 2020 up to and including 31 March 2021: US$500 million
8. From 1 April 2021 up to and including 30 September 2021: US$435 million
9. On the Final Maturity Date: nil;

Regards

Fernan

E121:

I don´t think you are correct. The US$ 140 millon debt amortization payment mencioned by you, originally scheduled to be made in April, and subsequently deferred to October, is the difference between the maximum amount of the credit facility permitted to be drawn at the time of restructuring (US$ 1.200 millon) and the maximum amount to be drawn from April 1, 2018 (US$ 1.060 millon) (see page 229 of the debt restructuring prospectus).

As I said before, since the amount outstanding of the credit facility at the beginning of the year (US$ 1.100 millon) was lower that the total amount permitted at the time of restructuring (US$ 1.200 millon), the required debt amortization payment to be made during the year, in order to accomplish with the terms of the loan, will be lower than originally envisaged.

Regards

Fernan

E121:

I don´t think you are correct. The US$ 140 millon debt amortization payment mencioned by you, originally scheduled to be made in April, and subsequently deferred to October, is the difference between the maximum amount of the credit facility permitted to be drawn at the time of restructuring (US$ 1.200 millon) and the maximum amount to be drawn from April 1, 2018 (US$ 1.060 millon) (see page 229 of the debt restructuring prospectus).

As I said before, since the amount outstanding of the credit facility at the beginning of the year (US$ 1.100 millon) was lower that the total amount permitted at the time of restructuring (US$ 1.200 millon), the required debt amortization payment to be made during the year, in order to accomplish with the terms of the loan, will be lower than originally envisaged.

Regards

Fernan

Another consecuence of this reduced debt amortization to be made in October is that any positive operating cash flow generated in the year (after taking into account of interest payments, taxes, CAPEX, etc) could be applied to the purchase of the remaining 75% interest in Magnus

Regards

Fernan

I think everybody here (including me) were wrong about the supposed US$ 270 millon mandatory credit facility "repayment" to take place next October. This mistake was shared by management, when they stated that "a single amortization of the RCF is due of US$ 270 millon in October 2018" (see note 19 to 2017 Annual FS)

I will try to explain that the amount to be repaid will be substantially less than that, and can be done using cash on hand at the beginning of the year (US$ 173 millon). As a consecuence of that, even if the operating cash flow for the period up to October 1fst is neutral (after taking into account interest payments, CAPEX, leasing, etc), Enquest will be able to accomplish that "repayment".

Here is the explanation:

According to the Debt restructuring prospectus issued in October 2016, the total amount outstanding of the credit facility from October 1, 2018 should be no greater than US$ 930 millon (see page 229 of the prospectus).

The amount of the theoretical mandatory "repayment" to be made next October (US$ 270 millon) was always calculated as the difference between the maximum amount of the credit facility allowed to be drawn at the time of restructuring (US$ 1.200 millon) and the maximun amount permitted from October 1, 2018 (US$ 930 millon).

But, in reality, the amount of the credit facility outstanding at the beggining of this year was only US$ 1.100 millon (see note 19 the 2017 Annual Financial Statements). This means that, in order to accomplish with the debt amortization schedule, Enquest only is obligated to amortize US$ 170 millon by October 1, 2018.

Even in the case of a neutral operating cash flow for the period, this mandatory repayment could be done by using cash on hand at the beginning of the year (US$ 173 millon).

Regards

Fernan

Hi Squif

Production should improve in 2H 2018

I made some projections that show that Enquest will be able to make the debt repayment in October, by using a combination of cash generated from operations and cash in hand at the beggining of the year (remember that Enquest had cash and available bank facilities of US$ 244 millon at the end of 2017). But the situation looks tight, no doubt about that.

Regards

Fernan

Good afternoon. Here are my numbers:

1.Production
In UK: 45.366 bopd
In Malaysia: 8.751 bopd
Total: 54.117 bopd
Source: company´s operational update on May 24, and OGA information

2. Selling price:
Average Brent during 1H 2018: US$ 70,6/b (see PMO 1H resuls press release)
Hedge: US$ 62/b (applicable to 20,547 bopd)
Malaysian selling price: 60% of Brent (see explanation on Enquest Capital Markets Day presentation on December 8, 2015, page 70).

3. Total oil sales:
((20.547 bopd X US$ 62) + (24.819 bopd X US$ 70,6) + (8.751 bopd X US$ 70,6 X 60%)) X 181 days: US$ 614,8 millon
Average selling price in 1H 2018: US$ 62,8 (89% of Brent)
The average selling price, as a percentage of Brent, is similar to the price received by Enquest in previous years.

4. Other revenues (tariff, rental income, etc): US$ 8 millons (see Note 5.a) to 2017 Annual FS)

5. Total Revenue: US$ mio 622,8

Note: In order to make a comparison with the Total revenue to be informed by the company, you need to add the adjustment to lifting position, that the company shows as part of Cost of Sales, but in reality should be considered as a component of revenue.

6. OPEX (US$ 24/b)
54.117 bopd X US$ 24/b X 181 days: US$ 235

7. G&A costs: US$ 0,4 millon (50% of the annual amount incurred in 2017)

8. EBITDA: US$ 387,4 millon

Note: barrels to to delivered as a repayment of the crude prepayment transaction are included in the calculation of EBITDA. The same criteria is applicable to oil sales from the 25% working interest in Magnus. I´m sure the company will apply the same criteria in the P&L statement.

Net debt reduction in 1H 2018
Its difficult to translate this EBITDA number into a Net debt reduction amount for the period. This is due to the uncertainties around CAPEX and Armada Kraken FPSO leasing payments, among other things. But if I have to risk a number, I expect net debt reduction in the US$ 50-80 millon range. But this is more a bet than a forecast.

Regards

Fernan

Good morning sirs.

BUMI took an impairmente charge of RM 478 in Q2 2018 (equivalent to aprox. US$ 114 millons) in relation to the accounting value of AK FPSO. This is in addition to one-off charges of aprox. US$ 25 millon, due to the penalty agreed with Enquest (US$ 15 millon) and rectification works to be done on the vessel (US$ 10 millon)

According to analysts, this impairment charge on the value of the vessel is an indication of potentially lower charter rates going forward.

What are the implications of that? could it be that Bumi recognized that the FPSO will be incapable of getting full production, and then the reduction in the present value of the total amount of leasing rates to receive from Enquest?

What do you think of that?

Fernan

Epiphany:

I agree with you regarding Magnus. Even if those barrels are part of "free cash flow" from an accounting point of view, in reality, it´s reasonable to assume that, as long as those barrels are not destined to the repayment of a Financial debt outstanding at the beginning of the period, they doesnt have to be taken into account in the calculation of the "adjusted free cash flow". You are right in this point, and I have to adjust my numbers. The total amount of free cash flow to be generated in 2018/19 should be reduced by the debt outstanding with BP from the acquisition of 25% of Magnus (US$ mio 66,6)

Regarding the repayment of the debt with Mercuria, I stay by my previous statement

Regards

Fernan

Epiphany:

in relation to the barrels to be assigned to Mercuria as a repayment of the debt, my reasoning is: as long as those barrels are used to repay a Financial debt outstanding at the beginning of the period, those barrels should be included within the free cash flow generated by the company during the year. Im sure the company will use the same criteria in the Financial Statements for 1H 2018.

But do whatever you want with that.

In relation to the 25% of Magnus already acquired, those barrels should also be included within the Free cash flow generated by the company, because it is entitled to them. Im also sure the company will show it the same way in the accounting. The debt to be repaid to BP out of those barrels is shown within the "Provisions" line in the balance sheet at Dec 31, 2017 (see notes 22 and 29 to the Financial Statements). They calculated the net amount to be paid to BP (after a few adjustments) as US$ mio 66,6. This amount should be included within the total amount of debt to be repaid out of cash flow.

Regards

Fernan

Epiphany121:
thanks for your comments. Here are a few notes on them:

1. Total gross financial debt at Dec 31, 2017 is US$ 1.219 millon. See note 19 to Financial Statemens. It includes:

Credit facility
Crude oil prepayment
SVT Working Capital Facility
Tanjong Baram project finance loan
Trade creditor loan
Total loans: 1.219.675 (in thousand of US$)

Jonathan Swinney uses the same criteria to inform Net Financial debt at the end of the year in companys presentation (with a little difference of US$ 11 millon in regard to the treatment of the fees on the bonds)

As per my post, this amount is shown in the balance sheet in the following way:

Current liabilities-borrowings 330
Non Current liabilities-borrowings 889
Total gross financial debt: 1.219

2. Prepayment (Mercuria): it doesnt matter if the debt is repaid out of cash flow or by delivering a given number of barrels. The final effect will be the same, that is: part of the operational cash flow is destined to the repayment of a debt included within the gross financial debt at the beginning of the year. And the same reasoning appplies to the interest generated by this debt

3. PMO/Seligi: even if this project has a lower weight in total production in 2018/2019, the way the PSC works, the higher the selling price, the higher the discount. For that reason, I keep the 11% discount unchanged from previous years

4. You wrote:

"All other things being equal, net debt should fall by at least the RCF repayments this year (assuming that cash balances hold up near the $175 million in place at the end of 2017) of $320 million. Hopefully more.."

Thats not correct.
During a given period, Net debt is reduced by the amount of Free Cash flow produced in the period. You can reduce Net Debt even if you dont repay the Debt outstanding, by simply hoarding cash.

Regards

Fernan

Thanks for your comments 50glass.

I think I was a little conservative with the production number for 2019 (60.000 boepd), but, given the history of production forecast dissapointments by Enquest management, I prefer to remain conservative.

Another assuption taken into account in my projections is that Enquest doesnt exercise the option to acquire the remaining 75% equity interest in Magnus. In case it does, I will modify the projections

Regards

Fernan

In relation to average production for 2018, I understand that Enquest is currently producing around 60.000 bopd, a number higher that the one taken into account in my projection (57.534 boepd, or 21.000.000 barrels annually).

I took a lower amount to take into consideration the planned shutdown of some fields for maintenance during the summer (see last operational update).

Regards

Fernan

Comments:

1. I calculate EBITDA in US$ per barrel (average selling price, OPEX and G&A) and then applied that number to the average annual production for the year

2. "the average historical discount on Brent" corresponds to the average price received by Enquest during the last years, as a consecuence of the way the Malaysian PSC works (in Malaysia, depending on the level of production and Brent price, Enquest receives around 60-70% of market prices, see December 2015 presentation, page 70)

3. In the case of the crude prepayment transaction, I applied the annual interest rate (libor + 7%) to the average annual balance of the debt during the year. For example, I estimated that average balance for 2018 at around US$ mio 40 and for 2019 at around US$ mio 10.

4. Net debt at the end of 2017 equals to US$ mio 1.980, as follows:

Current liabilities-borrowings 330
Non Current liabilities-borrowings 889
Non Current liabilities-bonds 934
Cash -173

Net financial debt at Dec 31, 2017 1.980

Regards

Fernan

The numbers for 2019 are:


Production bodpd 60.000 365 21.900.000

Selling price US$/b

Hedge production 66 7,5
Unhedged production 72 14,4

Avg selling price before historical discount to Brent 70

Average historical discount on Brent 11% 62

OPEX -24

G&A -1

EBITDA 37 816

Interest payments
Credit facility 950 7,8% -74
Bonds 945 7% -66
Crude prepayment 10 9% -1 -141


Malaysian taxes (US$ 11 millon in 2017) -20

Kraken FPSO lease payments: -118

CAPEX -150


Adjusted free cash flow (to be applied to net debt reduction) 387

Net financial debt at the beginning of year 1.787

Net financial debt at the end of year 1.400

Good morning sirs.
I made some calculations about free cash flow and net debt reduction projected for current year and next. I expect a net debt reduction of around US$ 200 millon for 2018. In 2019, this amount could double, as a consecuence of expected:
- higher production
- higher average crude prices
- lower CAPEX

Here are my numbers:

2018

Production bodpd 57.534 365 21.000.000

Selling price US$/b

Hedge production 62 7,5
Unhedged production 72 13,5

Avg selling price before historical discount to Brent 68

Average historical discount on Brent 11% 61

OPEX -24

G&A -1

EBITDA 36 754

Interest payments
Credit facility 1.220 7,5% -92
Bonds 945 7% -66
Crude prepayment 40 9% -4 -161

Waiver fee payable to lenders on March 2018 (2017 results press release, page
71) -12

Malaysian taxes (US$ 11 millon in 2017) -20

Kraken FPSO lease payments (current liabilities in 2017 annual report) -118

CAPEX -250

Repayment of crude prepayment transaction (US$ 80 millon in 18 months)
(included within Financial debt in Balance sheet at Dec 31, 2017)

Adjusted free cash flow (to be applied to net debt reduction) 193

Net financial debt at the beginning of year 1.980

Net financial debt at the end of year 1.787